Why You Need to Keep Good Records
How profitable is your business? You'll never know if you're not keeping track ”which is reason enough to set up some
of recordkeeping system.
Keeping records can be both a defensive and an offensive (in a good way) activity. It's defensive in that you have key information about your business in case you ever need it in the future ”to answer a query from the IRS, to investigate a customer complaint, or to notify customers in the case of a product recall. It's offensive in that you can use this information to generate more sales, by selling additional items to your existing customer base.
And then there's that matter of tracking the progress of your business.
You need to know how much things cost and how much you sell them for in order to gauge the success of your business. If nothing else, you have to report your business income to the Internal Revenue Service at the end of each year, and you can't do that if you don't know what you've sold, and for how much. The more detailed and accurate your
, the easier it is to put together your yearly tax returns ”and to claim all the
deductions against your income.
In addition, setting up a simple accounting system lets you generate monthly financials, which tell you on a near-real-time basis just how well your business is (or isn't) doing. After all, you don't want to wait until the end of the year to find out that you're going broke ”or getting rich!